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FW Thorpe Share Discussion Threads
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|From the excellent Richard Beddard in Money Week....
Home > Five Aim stocks to help you sidestep inheritance tax
Five Aim stocks to help you sidestep inheritance tax
Hold companies that qualify for Business Property Relief for two years, and your investment is 100% IHT-free. Analyst and private investor Richard Beddard recommends five of the best.
Judging by the response we get from MoneyWeek readers when we cover the topic, inheritance tax (IHT) – which is charged at a rate of 40% on the part of your estate that is worth more than £325,000 (or £650,000 for a couple) when you die – is probably the most loathed of all taxes, writes John Stepek. The bad news is that the IHT take hit a record high of £4.6bn for the tax year just past. The good news is that there are several ways to protect your assets.
One of the less well-known options is to invest in assets that qualify for Business Property Relief (BPR). Once a qualifying investment has been held for two years, it is 100% IHT-free. To qualify for BPR, a company cannot be listed on a recognised stock exchange, and its main business cannot be investing in other companies or property – so investment trusts do not qualify, for example. Where would you find such a company? One obvious hunting ground is the Alternative Investment Market (Aim), which is not a recognised stock exchange.
Of course, the tax tail should never wag the investment dog – there is no point in careful IHT planning if you only save on tax because you’ve lost all your money. So any stocks you invest in need to be companies you would want to buy anyway. Below, analyst and private investor Richard Beddard looks at five stocks that are appealing regardless of their BPR status.
A word of warning: a company may currently qualify for BPR (we have checked those listed below with the IHT screening tool offered by Investor’s Champion), but that could change. The key point is that it needs to qualify when your estate is passed on. So it is vital to keep a track of your Aim holdings and their status.
Also, as mentioned above, this is not the only way to manage your IHT exposure. Other methods include simply giving away assets (although if you die within seven years, these may still count as part of your estate), or investing in agricultural land. At MoneyWeek, we think it’s important for investors to be able to manage their own finances, but this is one area that, if you have an estate that is large enough and complicated enough to justify extensive IHT planning, is worth discussing with a tax specialist.
3. FW Thorpe (TFW)
Market cap: £270m
Debt-adjusted p/e: 23
FW Thorpe is best known for its principal brand and largest business, Thorlux. Thorlux manufactures commercial and industrial lighting systems. Take a tour around the Thorlux factory in Redditch and you will witness a small industrial revolution taking place. Beside production lines manufacturing traditional fluorescent lighting systems by hand, newer robotic lines assemble light-emitting diode (LED) systems. The principal components – the LEDs – are soldered to printed circuit boards in a cleanroom in a corner of the factory. The cleanroom is less than three years old.
In factories, shops, schools, offices, hospitals, and on our streets, old-style fluorescent light bulbs are being replaced by these more expensive, but longer-lasting, more energy-efficient LED lighting systems. LED systems are much more sophisticated than their forebears. For example, they come packaged with electronics that can control the light level depending on whether there are people moving nearby and the level of ambient light.
Other FW Thorpe businesses manufacture more specialised lighting, for roads and tunnels, streetlights, signs, and retail displays. Today, more than half of the company’s overall sales by value are LED lighting systems, but the group must still support customers who have yet to convert to the new technology. The company blames its lower profitability in recent years on the cost of developing and maintaining two product ranges, LED and incandescent.
However, three factors mitigate this decline. Firstly, Thorpe still achieves enviable levels of profitability – its return on capital in its last full financial year was 22%, the same as the previous two years. Secondly, as Thorpe retires its older products, profitability should improve. Finally, the company is focused on cutting the cost of the LED components it buys in. The adoption of LED lighting is happening very quickly and Thorpe admits it rushed to develop new products, not always cost effectively.
But as the cost of LEDs comes down, profitability should improve too. William Thorpe, who founded Thorlux in 1936, might be surprised if he were to return and see the factory now, but his grandson, Andrew Thorpe, who is the company’s chairman and joint chief executive, appears to be guiding FW Thorpe effectively through a potentially difficult transition. Again, the stock is tightly held so be aware of the spread when looking to buy or sell.|
|Very creditable results, but I have reluctantly decided to let go of the rest of these, I think my longest continuous holding (though already reduced in size). The best thing in the results was the good performance of Lightronics, which only cost £5.7m and gave £2.1m of profit. Thorlux solid but has been gradually but steadily losing margin ever since they provided segmental breakdowns! Cash pile very high of course, but has not actually increased since 2011, because capex has been high. Nothing much wrong here, but a PE of over 21 is rich given the generally rather sedate growth even in a good period for the economy. It would be exposed to a Brexit-induced economic slowdown - not that investors seem to be worrying about that at all outside the housing sector! Eerie complacency in the markets at present.|
|Very solid results.. but you're right, there isn't a lot of room for the shareprice to go up from where it is, unless they do something exciting with their cash. I wonder if I should maybe sell part of my holding, but the dreaded CGT will bite me.|
|Pretty strong set of results although no second special dividend payment. Overall the dividend for the year has increased 11% (excluding the special) and the balance sheet is still crammed with an increased amount of cash and near cash assets (c £33m at year end). Not convinced that the share price will make much progress in the short term but this stock is a core holding in my, and I suspect many other individual investors', portfolios. There is plenty of scope here for further earnings-enhancing acquisitions or special dividend payouts so I will continue to hold.|
|Finals will be published next Thursday (22nd Sept). Will be good to get an update.|
|coolen.....indeed. I have been a shareholder here for nearly fifteen years and attended quite a few Agms.
They are a great example of the quality family firms on AIM that are very investable for Inheritance tax exemption and also pay a steady dividend with a few special dividends along the way. They are also about one third of the market cap in cash which means a rock solid balance sheet.|
|Due credit to the Thorpe family: One of the market's finest investments over the past 5,10,15,20 years !|
|Well the final results are due in three weeks and the second half is always much stronger than the first half so that bodes very well.|
|Sp enjoying a strong run on a very limited news background. Are we due for some consolidation here?|
|Cracker interims!! Enjoy special div folks ...|
|Not surprised these are doing so well. Have you tried buying any new light bulbs recently? the cheapest I found were £4.50 each. You used to be able to get half a dozen of the old florescent ones for that price. There must be a big mark up on these new LED bulbs.|
|Mentioned positively in IC article by Todd Wenning
|After a run up like that most probably a bit of a pull back.
|220p seems quite high to me, in the absence of forecasts for next year. Any thoughts?|
|FW.Thorpe are mentioned in this small cap radio show...
|Problem with those auctions is that the bids and offers are now hidden until 5 minutes ahead of auction time. Until 2015, they were displayed constantly.
By the time my broker gets sight and phones me with the 10 stocks I'm interested in, the auction is finished and all the info wiped.
This backward step hardly helps liquidity in smaller companies: it merely forces PI's to accept the jobbers' prices.|
|It's a SETSQX stock so subject to periodic auctions throughout the day.
|Why do these shares go into 'auction' every morning? Anyone?|
|Modest, earnings enhancing, acquisition of Lightronics just been announced:-